Answered by Manish Satnaliwala | Founder and Managing Director, TruNorth | NorthAxis Advisory
Existing project debt cannot simply be transferred into an InvIT without thorough restructuring. Project finance term loans in SPVs are typically characterized by restrictive covenants, cash sweep mechanisms, tight DSRA requirements, and high lender margins tied to construction risk.
In an InvIT, operating risk is lower, and the trust can access far more competitive institutional debt markets—including long-tenor non-convertible debentures (NCDs), external commercial borrowings (ECBs), and multi-asset corporate bank facilities.
Evaluating existing debt involves auditing prepayment penalties, break costs, lender share pledge release timelines, and structuring consolidated trust-level debt that optimizes interest cost while complying with SEBI leverage caps (up to 49% baseline, or up to 70% subject to credit rating and track record).
Carrying expensive, fragmented project loans into an InvIT depresses Net Distributable Cash Flow and restricts cash upstreaming. Refinancing or rationalizing debt is often where the single largest financial value creation occurs during an InvIT formation.
Calculating whether the interest rate savings of refinancing outweigh the one-off exit penalties of existing bank facilities.
Engaging lead bankers early to negotiate NOCs for releasing parent corporate guarantees and share pledges.
Assessing consolidated net debt against the aggregate value of InvIT assets to ensure compliant borrowing cushions.
Structuring senior debt and cash waterfalls to achieve and sustain AAA or AA corporate credit ratings at the Trust level.
Sponsors often focus entirely on the equity valuation and ignore debt restructuring. Yet, refinancing 10.5% fragmented project loans into 7.8% trust-level listed bonds can instantly unlock substantial equity value and dramatically boost unitholder distribution yields.